Compass Report Growth and Major Buyback
In North America all of the sectors are performing well and Compass are continuing to see good quality organic revenue growth of 7% across a broad and well balanced portfolio.
15/05/08 Foodservice company Compass Group has delivered a strong first half ahead of expectations. Revenue of £5.6 billion with 5% organic growth was reported. Richard Cousins, Chief Executive Officer, said “The Group has delivered a strong set of results as we continue to benefit from the implementation of the MAP (Management and Performance) framework and the tight operational focus it has instilled across the organisation. We have seen another step up in our margin, with all our geographies contributing to a 60 basis points Group wide increase. Our improved operational performance lifted free cash flow generation by 32%, whilst underlying earnings per share rose by 44%. The Group has also strengthened its contract mix by continuing to win high quality new business in key markets.”
Sir Roy Gardner, Chairman, said: “After more than two years of disposals, country exits, restructuring and the roll out of MAP across the business, it is clear that our strategy is delivering value for our shareholders. We believe that we have a well balanced and sustainable business model which has the capacity to drive continued revenue and margin growth over the medium term. Balance sheet efficiency (whilst not compromising flexibility) remains a priority and looking forward, we are confident about the second half of the year and the future potential for the business. With this as the background, we are increasing the interim dividend by 11% and will buy back a further £400 million of our shares over the next 18 months”.
In North America all of the sectors are performing well and Compass are continuing to see good quality organic revenue growth of 7% across a broad and well balanced portfolio. “We are winning large and good quality contracts, are seeing excellent retention of over 96% and there is an increased focus on driving like for like performance. Our success in creating a multi-service Healthcare business through cross-selling between Morrisons, our food service business, and Crothall, our support services business has delivered double digit organic revenue growth in this sector. Chartwells, our Education business, continues to generate strong like for like growth through innovation and we have made good progress in the Business & Industry sector, Levy, our Sports & Leisure business, and in the Canadian business. Operating profit increased by £25 million, or 20%, on a constant currency basis to £153 million (2007: £128 million on a constant currency basis). This represents a further increase in the margin by 60 basis points to 6.7%, benefiting from the reduction in overheads in the second half of last year. Good management of input costs, better like for like growth and ongoing operating efficiencies across all of the main businesses are contributing to the improvement. We are currently working to drive further supply chain efficiencies and there remains a good opportunity to leverage the overhead base,”the company said
Compass reported 26.6% Group revenue in Continetal Europe (2007: 25.2%). “We are seeing an inflow of good quality new business and are placing a greater focus on like for like growth in Continental Europe with the organic revenue growth of 4% seen in the second half of 2007 continuing into the first half of 2008. There has been good progress in France, Spain, Nordic and Portugal and Italy is continuing to improve.” On a constant currency basis, growth of £12 million in operating profit from continuing operations to £106 million (2007: £94 million on a constant currency basis) represents a margin improvement of 60 basis points to 7.1%. The margin growth has come from further like for like revenue growth being converted at a high drop through and an attention to detail across all areas of MAP and across all countries. It is important to remember that the seasonality of this business, with the reduction in participation in the Business & Industry sector over the summer period and the closure of schools, means that record stronger profits and margin in the first half compared to the second half were reported.
The UK performance in the first half of the year is in line with expectations. Operating profit was £52 million (2007: £51 million), representing a 10 basis points improvement in the margin. “Over the last 18 months there has been extensive restructuring of the business, reducing management layers and increasing simplicity; we have almost completed the extensive process of addressing loss making contracts; we have made substantial operational changes to our Education business, and we now have a strong platform for moving forward; and we have simplified the purchasing organisation. Within the business we continue to focus on all aspects of the culinary experience. In 2007 we appointed a UK Executive Chef and senior executive chefs for our major sectors, who are also part of our senior leadership team. This is an initiative adapted from our US business, and encourages the development of the culinary side of the business through working with our chefs, suppliers and clients. This is working well and as an example we have been able to build on the progress already made within our schools business, with both our Executive Chef and fully qualified educational nutritionist developing healthier menus.
In the Rest of the World, the two largest businesses, Australia and Japan, together account for just over 50% of revenues. “Australia has continued to deliver good organic revenue growth of 5% and ongoing margin progression. We have a great market position in the remote site business to service the requirements of the fast moving extractive industries sector. In Japan, the focus has been on driving efficiency, addressing loss making contracts and integrating our Healthcare business, and the margin is now moving closer to the Rest of the World average. There is still much hard work to do and we need to continue to drive for improved revenue growth and further operating efficiencies. The Latin American business is dominated by Brazil which is now one of our largest 10 countries following the acquisition of the remaining 50% interest in GR SA. The business is performing well in a very buoyant market with 15% organic revenue growth and we are seeing encouraging early signs of further improvement in the business performance.”